Since hardware wallet devices first came to pass in the Bitcoin ecosystem, the Trezor has been the one wallet to rule them all. Added security measures, such as the ability to visually confirm the correct receiving address on the device’s display, were always the key selling point of the Trezor, but Ledger may have now caught up to its rival with the Nano S.

While the Nano S does include a screen for verifying the receiving address before sending a transaction, that’s only part of the reason why it is a compelling alternative to the Trezor. The Nano S also has a lower price point ($65 compared to the $99 Trezor), and Ledger’s open SDK may lead to the development of a large number of new, dynamic applications for the hardware wallet.

While there are plenty of people who have no reason to switch to the Nano S from the Trezor, bitcoin holders purchasing new hardware wallets may find it hard to pass up the latest offering from Ledger.

The Use of a Secure Element

The level of security provided by the original Ledger Nano was viewed as inferior when compared with the Trezor, but the Nano S appears to have completely flipped the script. The Secure Element included in the Nano S has some members of the Bitcoin community, such as Bitcoin Core contributor Btcdrak and Opendime founder Rodolfo Novak, claiming the Nano S is a more attractive option than the Trezor.

“Application isolation and runtime security,” responded Ledger CTO Nicolas Bacca when asked about the advantages of the Secure Element in the Nano S. “Our design is based on a microkernel on top of which applications run. Applications are isolated from each other and from the kernel, which means that, for example, a bug in the Ethereum app cannot compromise Bitcoin-derived keys.”

According to Bacca, the Secure Element also protects against interdiction attacks (when packages are intercepted en route by third parties like the NSA). “This allows end users to be sure that they are interacting with a genuine device,” he said. “It is pretty much impossible to do that with a generic [microcontroller] unless you build the device yourself.”

In the past, Yubikey manufacturer Yubico has shared similar criticisms of the use of standard microcontrollers in secure hardware devices.

According to Bacca, a Secure Element can also protect against situations where an attacker has physical control over a hardware wallet with some bitcoin on it. Whether a nefarious actor listens to the behavior of the chip in an attempt to deduce information or physically targets specific aspects of the chip to derail running code, a Secure Element has added protections to limit the effectiveness of an attack.

“In a complex active attack — where an attacker tries, for example, to dump the memory by extracting it from the chip — a Secure Element protects against those by encrypting everything in place (flash, RAM, memory buses) and features a mesh that’ll detect potential intrusions into the chip structure and erase its internal cryptographic keys when it happens,” Bacca explained as an example defense mechanism.

Bacca discussed these issues more deeply in a presentation early last year.

In general, SatoshiLabs, which is the company behind the Trezor, disagrees with the security claims surrounding the use of a Secure Element. “We at SatoshiLabs remain skeptical about the use of Secure Elements as a guarantee for security,” SatoshiLabs CEO Alena Vranova told Bitcoin Magazine. “The added security may not really be that significant, while the loss of open source might actually pose a serious security threat. Instead of jumping on a promise of smart card security, Trezor has focused on bringing an overall smart security design instead. We chose to use a standard microcontroller, open-sourced our entire stack and implemented PIN and passphrase protection as a solid safeguard against physical risk (allowing for plausible deniability).”

In response to questions about Secure Elements from Bitcoin Magazine, SatoshiLabs provided a statement that made five key points: closed source is a security threat; the most prevalent threats to a user’s bitcoin stash come from the online world; any wallet will always be susceptible to the $5 wrench attack; there have been successful thefts from chip-and-PIN cards that use Secure Element technology; and the wide use of Secure Elements is making them a larger target for hackers.

“The added security may not really be that significant, while the loss of open source might actually pose a serious security threat,” concluded the statement.

More Details on the Nano S

With the original Nano, the seed for the wallet was generated on the host computer rather than the actual device. This has changed with the Nano S. The seed and PIN are now generated directly on the hardware wallet.

Ledger’s bitcoin wallet software also received the highest score on the Open Bitcoin Privacy Project’s most recent report on bitcoin wallets. Having said that, the wallet only scored a 50 out of 100, and various Bitcoin Core contributors disagreed with certain aspects of the scoring system. Ledger’s Chrome extension was mainly praised for helping users avoid address reuse and allowing multiple accounts to be created and managed.

As a comparison, the myTrezor.com web wallet scored a 42 out of 100 in the OBPP report. Having said that, it should be remembered that these hardware devices can be integrated into other, possibly more private bitcoin wallets as well.

Linux users may still find that their computer does not recognize the Ledger Nano S at first, but the execution of a single command in the terminal resolves this issue quickly.

Ledger Nano S Applications

In addition to the improved security features found with the Nano S, Ledger has also created a development environment for applications that could grow rather quickly.

Much like the Trezor, the Nano S can be used as a form of second-factor authentication for Google, Dropbox, Dashlane and other accounts. Both hardware wallets use the FIDO U2F open authentication standard, which is said to offer better security than the two-factor authentication people usually use via their smartphones.

Ledger has also developed its own Ethereum wallet, which also supports the Ethereum Classic chain. The Nano S is the first hardware wallet to support either of the Ethereum chains. SatoshiLabs is currently working on getting Trezor integrated into the Mist Ethereum client.

Both the Nano S and the Trezor also include support for GPG and SSH.

“This is really important,” said Bitcoin Core contributor Nicolas Dorier when asked for his thoughts on the Ledger Blue SDK. “We are (at Metaco, my company) currently working on a product which makes use of this feature for securing hot wallet funds. Other apps will probably come very soon; I’m personally hopeful for OTP and password manager.”

It’s already possible to use the Ledger Nano S as a password manager of sorts by linking it to a Dashlane account. SatoshiLabs has also developed a beta version of a password manager specifically for use with the Trezor.

How Can Ledger Continue to Improve?

While Ledger has taken a massive step forward with the Nano S, there is still room to improve. One feature that some would like to see added to the Nano S, and which is already included in the Trezor, is multi-passphrase encryption.

“I’m still not using [the Ledger Nano S] for securing my bitcoin because it lacks an important feature that Trezor has: plausible deniability,” said Dorer. “[The benefits of the Secure Element] are rather useless if you are weak against a $5 wrench attack. I know that they will release [this feature] soon though.”

Indeed, when asked about this feature, Bacca confirmed that it will be added soon. “We’ll add BIP 39 passphrase support in a future update, mostly for privacy or plausible deniability reasons — it’ll be possible to enter it directly on device or to link it to a specific PIN to work with all services that might not be aware of it,” he said.

Ledger also has a new hardware wallet in the works known as the Ledger Blue, which supports a variety of new features such as Bluetooth connectivity and a touchscreen display. A version of the Ledger Blue for developers and enthusiasts is already available.

According to Dorier, the Secure Element in the Nano S and Ledger’s SDK for developers has raised the standard in the bitcoin hardware wallet industry. He went as far as to say, “[Ledger is] likely the most exciting company in the Bitcoin space right now.”

Disclosure: In the past, the author of this article has been provided with hardware devices from Ledger and SatoshiLabs at no cost for review purposes.